DEA Charges Bitcoin Exchange Companies for Laundering #SilkRoad Drug Money

The DEA and other federal law enforcement partners today Bitcoin exchangers, including a CEO, were charged with money laundering related to drug proceeds from users of the Silk Road website. James J. Hunt, the DEA Acting Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), Preet Bharara, the United States Attorney for the Southern District of New York, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced the unsealing of criminal charges in Manhattan federal court.

Charges are against ROBERT M. FAIELLA, a/k/a “BTCKing,” an underground Bitcoin exchanger, and CHARLIE SHREM, the Chief Executive Officer and Compliance Officer of a Bitcoin exchange company, for engaging in a scheme to sell over $1 million in Bitcoins to users of “Silk Road,” the underground website that enabled its users to buy and sell illegal drugs anonymously and beyond the reach of law enforcement. Each defendant is charged with conspiring to commit money laundering, and operating an unlicensed money transmitting business. SHREM is also charged with willfully failing to file any suspicious activity report regarding FAIELLA’s illegal transactions through the Company, in violation of the Bank Secrecy Act. SCHREM was arrested yesterday at John F. Kennedy International Airport in New York, and is expected to be presented in Manhattan federal court later today before U.S. Magistrate Judge Henry Pitman. FAIELLA was arrested today at his residence in Cape Coral, Florida, and is expected to be presented in federal court in the Middle District of Florida.

DEA Acting Special-Agent-in-Charge James J. Hunt said: “The charges announced today depict law enforcement's commitment to identifying those who promote the sale of illegal drugs throughout the world. Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way. Drug law enforcement’s job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye.”

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road. Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would coopt new forms of currency for illicit purposes.”

IRS Special-Agent-in-Charge Toni Weirauch said: “The government has been successful in swiftly identifying those responsible for the design and operation of the ‘Silk Road’ website, as well as those who helped ‘Silk Road’ customers conduct their illegal transactions by facilitating the conversion of their dollars into Bitcoins. This is yet another example of the New York Organized Crime Drug Enforcement Strike Force’s proficiency in applying financial investigative resources to the fight against illegal drugs.”

According to the allegations contained in the Criminal Complaint unsealed today in Manhattan federal court:

From about December 2011 to October 2013, FAIELLA ran an underground Bitcoin exchange on the Silk Road website, a website that served as a sprawling and anonymous black market bazaar where illegal drugs of virtually every variety were bought and sold regularly by the site’s users. Operating under the username “BTCKing,” FAIELLA sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site. Upon receiving orders for Bitcoins from Silk Road users, he filled the orders through a company based in New York, New York (the “Company”). The Company was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and it charged a fee for its service. FAIELLA obtained Bitcoins with the Company’s assistance, and then sold the Bitcoins to Silk Road users at a markup.

SHREM is the Chief Executive Officer of the Company, and from about August 2011 until about July 2013, when the Company ceased operating, he was also its Compliance Officer, in charge of ensuring the Company’s compliance with federal and other anti-money laundering (“AML”) laws. SHREM is also the Vice Chairman of a foundation dedicated to promoting the Bitcoin virtual currency system.

SHREM, who personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service for Silk Road users. Nevertheless, SHREM knowingly facilitated FAIELLA’s business with the Company in order to maintain FAIELLA’s business as a lucrative source of Company revenue. SHREM knowingly allowed FAIELLA to use the Company’s services to buy Bitcoins for his Silk Road customers; personally processed FAIELLA’s orders; gave FAIELLA discounts on his high-volume transactions; failed to file a single suspicious activity report with the United States Treasury Department about FAIELLA’s illicit activity, as he was otherwise required to do in his role as the Company’s Compliance Officer; and deliberately helped FAIELLA circumvent the Company’s AML restrictions, even though it was SHREM’s job to enforce them and even though the Company had registered with the Treasury Department as a money services business.

Working together, SHREM and FAIELLA exchanged over $1 million in cash for Bitcoins for the benefit of Silk Road users, so that the users could, in turn, make illegal purchases on Silk Road.

In late 2012, when the Company stopped accepting cash payments, FAIELLA ceased doing business with the Company and temporarily shut down his illegal Bitcoin exchange service on Silk Road. FAIELLA resumed operating on Silk Road in April 2013 without the Company’s assistance, and continued to exchange tens of thousands of dollars a week in Bitcoins until the Silk Road website was shut down by law enforcement in October 2013.

FAIELLA, 52, of Cape Coral, Florida, and SHREM, 24, of New York, New York, are each charged with one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and one count of operating an unlicensed money transmitting business, which carries a maximum sentence of five years in prison. SHREM is also charged with one count of willful failure to file a suspicious activity report, which carries a maximum sentence of five years in prison.

Mr. Bharara praised the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which is comprised of agents and officers of the U. S. Drug Enforcement Administration, the New York City Police Department, Immigration and Customs Enforcement - Homeland Security Investigations, the New York State Police, the U. S. Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Secret Service, the U.S. Marshal Service, New York National Guard, Office of Foreign Assets Control and the New York Department of Taxation and Finance. Mr. Bharara also thanked the FBI’s New York Field Office.  Mr. Bharara also noted that the investigation remains ongoing.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Andrew Adams of the Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

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Seth Gillman Charged with Federal Health Care Fraud for Allegedly Falsely Elevating Level of Patients’ Care

An owner of an Illinois hospice company was charged with federal health care fraud for allegedly engaging in an extensive scheme to obtain higher Medicare and Medicaid payments by fraudulently elevating the level of hospice care for patients, many of whom resided at nursing homes he also controlled across the state. In many instances, the level of hospice care allegedly exceeded what was medically necessary or actually provided, including for some patients who did not have terminal illnesses or who were enrolled far longer―sometimes for several years―than the required life expectancy of six months or less.

The defendant, Seth Gillman, 46, of Lincolnwood, was charged with one count each of health care fraud and obstructing a federal audit in a criminal complaint that was filed late Friday in U.S. District Court. He is scheduled to appear at 3 p.m. today before Magistrate Judge Geraldine Soat Brown in federal court.

Gillman, an attorney, is the corporate agent, administrator, and one-fourth owner of Passages Hospice LLC, based in west suburban Lisle, and is also the agent and secretary of Asta Healthcare Company Inc., which operates Asta Care Center nursing homes in Bloomington, Colfax, Elgin, Ford County, Pontiac, Rockford, and Toluca, Illinois. Passages did not have its own inpatient facility but instead deployed nurses to visit hospice patients in nursing homes and private residences. As Passages grew, it divided its operations into geographic regions covering Chicago and the western suburbs, Rockford, Bloomington, and Belleville, with different nurses, nursing directors, and medical directors for each region.

The charges allege that between August 2008 and January 2012, Gillman trained and caused to be trained Passages nurses to look for signs that allegedly would qualify a hospice patient for general inpatient care (GIP), resulting in higher payments per day, compared to routine care. Gillman allegedly knew that many of Passages’ patients were improperly being placed on GIP, in part as a result of a 2009 review of patient files, a 2009 report by an outside consultant, and a 2010 internal audit. Gillman also knew that some patients were placed on GIP without a medical director’s approval.

In fiscal year 2012, Medicare’s daily reimbursement for GIP was $671.84, while the daily payment for routine care was $151.23. According to claims data, from January 2006 to late 2011, Passages submitted claims for approximately 4,769 patients to Medicare and/or Medicaid and was paid approximately $95 million from Medicare and approximately $30 million from Medicaid. Between July 2008 and late 2011, Passages was paid approximately $23 million by Medicare for claimed GIP services, in addition to Medicaid payments for claimed GIP services submitted on behalf of more than 200 patients.

According to a 69-page affidavit in support of the charges, federal agents have interviewed patients, family members, and more than 30 former and current employees of Passages, including several who reported allegedly fraudulent billing and marketing practices to Medicare and/or law enforcement before they were contacted by agents. Investigators have also reviewed e-mails, documents, and patient files that were obtained in response to a 2011 civil investigative demand, a January 2012 search warrant, and subpoenas issued in 2013, as well as claims data from Medicare and Medicaid.

Medicare claims data revealed that approximately 22 percent of Passages’ patients between 2006 and late 2011 had more than six months of hospice care, with 28 patients receiving more than 1,000 days of hospice care in that period. By contrast, according to the National Hospice and Palliative Care Organization, only 11.8 percent of all hospice patients in 2009 were on hospice care for longer than six months.

For example, the complaint affidavit cites Patient JW, who was admitted to an Asta nursing home in 2003 following a major stroke, and Passages billed for more than 2,000 days of hospice services. In another example, Passages submitted bills for 1,443 days of hospice care for Patient LJ, who was admitted to an Asta nursing home in 2001. Patient LJ’s son told investigators that his mother appeared in no danger of dying until the last month of her life.

The charges also cite Medicare claims data showing that Passages’ billing for GIP services grew significantly. In 2010, Passages billed approximately 1,161 GIP patient days to Medicare monthly, and the figure rose to 1,430 GIP patient days a month through the first nine months of 2011. The average GIP payments that Passages received per month was $4,437 in the period from mid-2006 to mid-2008, and the monthly payments increased to $946,743 in 2011.

A hospice physician retained by the government reviewed files for 13 Passages patients, 10 of whose admissions exceed six months and extended to as many as 1,598 days over two admission periods. The government’s expert found that nine of the 13 patients were not eligible for Medicare hospice benefits for part or all of their admission and that all the 503 days of GIP submitted for those patients were improper and excessive.

A woman, identified as Individual E in the affidavit, who helped Gillman and his father start Passages and served as its clinical director for several years until she was fired told agents that Gillman said if a patient was under Passages’ care, they were sick enough to warrant GIP care. When Individual E confronted Gillman over the GIP eligibility of Patient DB, Gillman allegedly told her to mind her own business because he needed the money, the affidavit states.

The charges further allege that in the fall of 2008, Gillman began paying bonuses, sometimes well in excess of their salary, to Passages’ directors overseeing nurses and certified nursing assistants based on the amount of GIP under their supervision. Gillman also authorized large bonuses to himself and a co-administrator, Individual A, based on the number of patients per day at certain nursing homes in the Belleville region, including $833,375 to himself between March 2009 and April 2011. The bonuses increased as the number of patients on GIP increased and as the number of facilities counted for the bonuses increased, according to the affidavit.

Passages also allegedly had arrangements with approximately eight nursing homes in 2010 in which it paid the nursing homes $250 for every patient who was on GIP per day.

The obstructing a federal audit count alleges that in August and September 2009, Gillman, Individual A, and others oversaw and conducted an effort to alter patient files that had been requested by TrustSolutions, which contracted with the Centers for Medicare and Medicaid Services to audit providers for fraud and abuse. Several former Passages employees have admitted to agents their involvement in the altering of patient files in the summer of 2009 as well as in another session in 2010, the affidavit states.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Lamont Pugh, III, Special Agent in Charge of the Chicago Regional Office of the HHS-OIG; and Robert J. Holley, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation. The Illinois Attorney General’s Office is also participating in the investigation.

The government is being represented by Assistant U.S. Attorney Stephen C. Lee.

Health care fraud carries a maximum penalty of 10 years in prison and a $250,000 fine, and obstructing a federal audit carries a maximum of five years in prison and a $250,000 fine, and restitution is mandatory. If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The public is reminded that a complaint is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

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Angelo Turner Sentenced to 57 Months in Federal Prison on Drug Charges

A Rockford, Illinois man was sentenced in federal court before U.S. District Judge Frederick J. Kapala as the last of seven defendants to be sentenced on related drug trafficking charges. Angelo Turner, 30, was sentenced to 57 months in prison without parole, to be followed by three years of supervised release, for conspiracy to possess with intent to distribute and distribution of cocaine. Turner pleaded guilty to the charge on October 25, 2013, admitting that as early as May 2012 through December 20, 2012, he conspired with others to distribute cocaine in the Rockford area.

Also charged were Angelo Turner’s brother, John Turner, 32, and Marquice Fields, 28, both of Rockford. John Turner pleaded guilty to the conspiracy and was sentenced on October 24, 2013, to 51 months’ imprisonment, to be followed by three years’ supervised release. Fields pleaded guilty to using a mobile telephone to facilitate the drug conspiracy and was sentenced on January 13, 2014, to three years’ probation.

In a related case, Nicholas Clark, 32; Richard Clark, 40; Steven Keenan, 26; and Richard Rill, 48, all of Rockford, were charged and pleaded guilty to conspiracy to possess with intent to distribute and distribution of cocaine from early 2012 through December 2012. Nicholas Clark was sentenced on August 14, 2013, to 120 months’ imprisonment, to be followed by eight years’ supervised release. Richard Clark was sentenced on November 14, 2013, to 60 months’ imprisonment, to be followed by four years’ supervised release. Keenan was sentenced on September 10, 2013, to 60 months’ imprisonment, to be followed by four years’ supervised release. Rill was sentenced on August 14, 2013, to 60 months’ imprisonment, to be followed by five years’ supervised release. None of the defendants will be eligible for parole.

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Joseph Romano Convicted of Conspiring to Murder Federal Judge and Federal Prosecutor

U.S. Attorney William J. Hochul, Jr. announced that a federal jury convicted Joseph Romano, 51, of Levittown, New York, of conspiring to murder the Assistant United States Attorney who prosecuted him for engaging in an eight-year, multi-million-dollar fraud involving the telemarketing of coins. The jury also convicted the defendant of conspiring to murder the United States District Judge who sentenced him to 15 years in prison for that fraud. The defendant faces a maximum penalty of life in prison, a fine of $250,000, or both, in addition to forfeiture of more than $200,000 when he is sentenced in March.

“A threat against a member of the criminal justice system, such as a Judge or an attorney, is nothing less than an attempt to subvert the system, and as such will not be tolerated,” said U.S. Attorney Hochul.

According to the government’s trial evidence, the defendant agreed to pay $40,000 to an undercover police officer, whom he thought was a hitman, to kill the federal judge and prosecutor. The defendant also requested that the hitman cut off their heads in exchange for a “bonus.” Law enforcement authorities learned of the plot in August 2012 from another inmate at the Nassau County Correctional Center where Romano was being held. During the subsequent investigation, two undercover law enforcement officers, posing as hitmen, met with Romano and co-conspirator Dejvid Mirkovic numerous times at locations on Long Island, including the Correctional Center.

At the first meeting, Romano offered to pay one of the undercover officers $3,000 to assault an individual with whom he had a financial dispute. Co-conspirator Mirkovic then met with one of the undercover officers and paid him $1,500 as a down payment for the assault. After one of the undercover officers showed proof of the purported assault of the intended victim—in fact, a staged photograph and an identification card—Mirkovic paid the undercover officer the $1,500 balance.

Later that same day, Mirkovic again met with the undercover officer, relayed Romano’s instructions to murder the federal judge and prosecutor, and offered $40,000 for the commission of the two murders. In addition, Mirkovic indicated that Romano wanted the federal judge and prosecutor beheaded and the body of the prosecutor mutilated and that he was willing to pay extra for those services. Over the following weeks, the undercover officer received $22,000 in cash down payments for the murders and was promised payment of the final $18,000 when the murders were completed. At the time of the arrests of Romano and Mirkovic on October 9, 2012, law enforcement officers recovered $18,000 in cash and a loaded 9mm semi-automatic handgun at Mirkovic’s residence in Lake Worth, Florida.

In March 2013, Dejvid Mirkovic pleaded guilty to conspiracy to murder and was sentenced to 24 years in prison in August 2013.

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Despite Accusations of #ElderAbuse, Joey "The Clown" Lombardo to Remain in "The Hole"

Imprisoned Chicago hit man and 84-year-old mob boss Joey Lombardo will remain in solitary confinement.

In Wednesday's ruling, US District Judge James Zagel denied Lombardo's request to get out of what is commonly known as "the hole" saying "this court has no jurisdiction" to make that decision. In Judge Zagel's order, he suggests Lombardo file a lawsuit in North Carolina where he is currently locked up.

His attorneys accuse the government of "elder abuse."

For decades, Joey Lombardo has been known in mob circles as "the clown." But on Monday, his courthouse hijinks and comedic banter with the media have given way to a tear-jerking motion for mercy. Or at least that is what Mr. Lombardo might like you to believe. Attorneys for the aged Chicago outfit boss say he is just a sick old man in a wheelchair and should be removed from solitary confinement, where he has been locked up 24 hours a day as a violent menace.

Long gone are the days when Joey the Clown wore a newspaper mask to court, or led news crews on a sprint through downtown. Since Lombardo was sentenced to life in prison during the landmark Family Secrets mob murders case, he has been locked up at the Butner North Carolina penitentiary under what are known as "special administrative measures" -- shorthand for solitary confinement.

Lombardo's lawyers say the lockdown was meant to keep international terrorists from plotting attacks.

In their motion to release Lombardo from solitary, they say "the imposition of these draconian conditions against an 84-year-old, chronically ill, wheelchair-user can only be an attempt to appear 'tough on crime' by engaging in 'elder abuse' against a man who once had a reputation (deserved or not) as a major player in the Chicago 'Mob.'"

Lombardo was convicted of personally murdering those who crossed the outfit even while overseeing the Chicago mob. He is a career hoodlum having risen through the ranks from syndicate soldier. But at 84, his lawyers say keeping his on lockdown is "unduly restrictive on Petitioner's physical well-being and his mental health, especially given his advanced age." And they contend "punitive confinement for more than 30 days constitutes "cruel and unusual punishment."

In the government's response on file Monday, they pay homage to Lombardo's moniker "the clown" then ridicule his effort to escape lockdown, stating: "defendant does not even properly allege that this matter is ripe for federal court review in any forum, let alone this one. In addition to the obvious jurisdictional problem noted above, the defendant does not contend that he has exhausted his administrative remedies."

Prosecutors say Lombardo has already been denied a similar request once before. These special administrative measures are generally imposed by the Bureau of Prisons and have been used on terror suspects, but other Chicago mob bosses have been put in solitary as well.

Thanks to Chuck Goudie.

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